---



Exhibit 99.3



CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2013 and 2012

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INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Timmins Gold Corp.,

We have audited the accompanying consolidated financial statements of Timmins Gold Corp., which comprise the consolidated statements of financial position as at December 31, 2013, December 31, 2012, and January 1, 2012, and the consolidated
statements of earnings and total comprehensive income, changes in equity and cash flows for the years ended December 31, 2013 and 2012, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such
internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Timmins Gold Corp. as at December 31, 2013, December 31, 2012, and January 1, 2012, and its financial performance and its cash
flows for the years ended December 31, 2013 and 2012 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.



Chartered Accountants
March 6, 2014 
Vancouver, Canada

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|TIMMINS GOLD CORP.CONSOLIDATED STATEMENTS OF EARNINGS AND TOTAL
    COMPREHENSIVE INCOMEFor the
    years ended December 31, 2013 and 2012 (In thousands of United States
    dollars, except share numbers and per share amounts)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                           |  | Note |  |   | 2013        |   |   | 2012          |  
|---------------------------------------------------------- |  | ---- |  | - | ----------- | - | - | ------------- | -
|                                                           |  |      |  |   |             |   |   | *Note 4a) ii* |  
|                                                           |  |      |  |   |             |   |   |               |  
|Metal revenues                                             |  | 20   |  | $ | 160,593     |   | $ | 156,192       |  
|                                                           |  |      |  |   |             |   |   |               |  
|Cost of sales (including depreciation and depletion)       |  | 5a)  |  |   | 101,920     |   |   | 77,251        |  
|                                                           |  |      |  |   |             |   |   |               |  
|Earnings from mine
      operations                        |  |      |  |   | 58,673      |   |   | 78,941        |  
|                                                           |  |      |  |   |             |   |   |               |  
|Impairment of non-current
      unprocessed ore stockpile  |  | 7    |  |   | 6,340       |   |   | -             |  
|Corporate and administrative expenses                      |  | 5b)  |  |   | 11,192      |   |   | 16,003        |  
|                                                           |  |      |  |   |             |   |   |               |  
|Earnings from operations                                   |  |      |  |   | 41,141      |   |   | 62,938        |  
|                                                           |  |      |  |   |             |   |   |               |  
|Other income, net                                          |  |      |  |   | 57          |   |   | 169           |  
|Finance expense                                            |  | 5c)  |  |   | (1,707      | ) |   | (2,494        | )
|Foreign exchange gain (loss)                               |  |      |  |   | 747         |   |   | (1,146        | )
|                                                           |  |      |  |   |             |   |   |               |  
|Earnings before income taxes                               |  |      |  |   | 40,238      |   |   | 59,467        |  
|                                                           |  |      |  |   |             |   |   |               |  
|Income taxes                                               |  |      |  |   |             |   |   |               |  
|Current tax expense                                        |  | 13   |  |   | 3,099       |   |   | 14,152        |  
|Deferred tax expense                                       |  | 13   |  |   | 21,796      |   |   | 7,583         |  
|                                                           |  |      |  |   | 24,895      |   |   | 21,735        |  
|                                                           |  |      |  |   |             |   |   |               |  
|Earnings and total
      comprehensive income for the year |  |      |  | $ | 15,343      |   | $ | 37,732        |  
|                                                           |  |      |  |   |             |   |   |               |  
|Weighted average shares outstanding:                       |  |      |  |   |             |   |   |               |  
|Basic                                                      |  | 14   |  |   | 144,120,095 |   |   | 142,555,763   |  
|Diluted                                                    |  | 14   |  |   | 146,140,439 |   |   | 144,489,470   |  
|                                                           |  |      |  |   |             |   |   |               |  
|Earnings per share:                                        |  |      |  |   |             |   |   |               |  
|Basic                                                      |  | 14   |  | $ | 0.11        |   | $ | 0.26          |  
|Diluted                                                    |  | 14   |  | $ | 0.11        |   | $ | 0.26          |  

The accompanying notes are an integral part of these
consolidated financial statements.

---

|TIMMINS GOLD CORP.CONSOLIDATED STATEMENTS OF CASH
FLOWS For the years ended December 31, 2013 and 2012 (In thousands of
United States dollars)
|----------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                          |  | Note |  |       | 2013    |   |   | 2012        |  
|----------------------------------------------------------------------------------------- |  | ---- |  | ----- | ------- | - | - | ----------- | -
|                                                                                          |  |      |  |       |         |   |   | Note 4a) ii |  
|OPERATING ACTIVITIES                                                                      |  |      |  |       |         |   |   |             |  
|Earnings before income taxes                                                              |  |      |  | **$** | 40,238  |   | $ | 59,467      |  
|Items not affecting cash:                                                                 |  |      |  |       |         |   |   |             |  
|Depletion and
      depreciation                                                          |  | 5a)  |  |       | 15,471  |   |   | 9,389       |  
|Finance
      expense                                                                     |  |      |  |       | 1,707   |   |   | 2,494       |  
|Share-based payments                                                                      |  | 12b) |  |       | 784     |   |   | 6,143       |  
|Impairment of non-current unprocessed ore stockpile                                       |  |      |  |       | 6,340   |   |   | -           |  
|Unrealized foreign exchange (gain) loss                                                   |  |      |  |       | (946    | ) |   | 215         |  
|                                                                                          |  |      |  |       | 63,594  |   |   | 77,708      |  
|Changes in non-cash working capital items:                                                |  |      |  |       |         |   |   |             |  
|Trade and
      other receivables                                                         |  |      |  |       | (4,246  | ) |   | (18,880     | )
|Inventories                                                                               |  |      |  |       | (10,171 | ) |   | (9,675      | )
|Advances
      and prepaid expenses                                                       |  |      |  |       | 1,995   |   |   | (226        | )
|Trade payables and accrued liabilities                                                    |  |      |  |       | 1,241   |   |   | 2,216       |  
|Cash flows provided by operating activities                                               |  |      |  |       | 52,413  |   |   | 51,144      |  
|                                                                                          |  |      |  |       |         |   |   |             |  
|INVESTING ACTIVITIES                                                                      |  |      |  |       |         |   |   |             |  
|Expenditures on mineral properties, plant and equipment,
      exploration and evaluation |  |      |  |       | (52,572 | ) |   | (38,614     | )
|Cash flows used in investing activities                                                   |  |      |  |       | (52,572 | ) |   | (38,614     | )
|                                                                                          |  |      |  |       |         |   |   |             |  
|FINANCING ACTIVITIES                                                                      |  |      |  |       |         |   |   |             |  
|Interest paid                                                                             |  |      |  |       | (1,398  | ) |   | (1,797      | )
|Transaction costs paid                                                                    |  |      |  |       | -       |   |   | (68         | )
|Issuance of shares on exercise of share options                                           |  |      |  |       | 165     |   |   | 3,647       |  
|Cash flows (used in) provided by financing activities                                     |  |      |  |       | (1,233  | ) |   | 1,782       |  
|                                                                                          |  |      |  |       |         |   |   |             |  
|Effects of exchange rate
      changes on the balance of cash held in foreign currencies  |  |      |  |       | (20     | ) |   | 11          |  
|                                                                                          |  |      |  |       |         |   |   |             |  
|(Decrease) increase in cash                                                               |  |      |  |       | (1,412  | ) |   | 14,323      |  
|Cash, beginning of year                                                                   |  |      |  |       | 24,188  |   |   | 9,865       |  
|Cash, end of year                                                                         |  |      |  | **$** | 22,776  |   | $ | 24,188      |  

Supplemental disclosure with respect to cash flows(note
15)

The accompanying notes are an integral part of these
consolidated financial statements.

---

|TIMMINS GOLD CORP.CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION (In thousands of United States dollars)
|-------------------------------------------------------------------------------------------------------

|                                                                          |  |        |  |   | December 31, |  |   | December 31, |     |   | January 1,    | 
|------------------------------------------------------------------------- |  | ------ |  | - | ------------ |  | - | ------------ | --- | - | ------------- | 
|                                                                          |  | Note   |  |   | 2013         |  |   | 2012         |     |   | 2012          | 
|                                                                          |  |        |  |   |              |  |   | Note 4a      | )ii |   | *Note 4a) ii* | 
|ASSETS                                                                    |  |        |  |   |              |  |   |              |     |   |               | 
|Current                                                                   |  |        |  |   |              |  |   |              |     |   |               | 
|Cash                                                                      |  |        |  | $ | 22,776       |  | $ | 24,188       |     | $ | 9,865         | 
|Trade and other receivables                                               |  | 6      |  |   | 14,678       |  |   | 10,570       |     |   | 8,254         | 
|Inventories                                                               |  | 7      |  |   | 43,103       |  |   | 32,384       |     |   | 29,183        | 
|Advances and prepaid expenses                                             |  |        |  |   | 991          |  |   | 2,986        |     |   | 2,760         | 
|Total current assets                                                      |  |        |  |   | 81,548       |  |   | 70,128       |     |   | 50,062        | 
|                                                                          |  |        |  |   |              |  |   |              |     |   |               | 
|Mineral properties, plant and
      equipment, exploration and evaluation |  | 8      |  |   | 180,443      |  |   | 137,147      |     |   | 105,692       | 
|Non-current unprocessed ore stockpile                                     |  | 7      |  |   | 6,523        |  |   | 10,372       |     |   | 4,481         | 
|Total assets                                                              |  |        |  | $ | 268,514      |  | $ | 217,647      |     | $ | 160,235       | 
|                                                                          |  |        |  |   |              |  |   |              |     |   |               | 
|LIABILITIES                                                               |  |        |  |   |              |  |   |              |     |   |               | 
|Current                                                                   |  |        |  |   |              |  |   |              |     |   |               | 
|Trade payables
      and accrued liabilities                              |  | 9      |  | $ | 27,144       |  | $ | 16,509       |     | $ | 15,884        | 
|Vendor loan                                                               |  |        |  |   | 1,725        |  |   | 1,725        |     |   | 1,725         | 
|Loan facility                                                             |  | 11, 21 |  |   | 16,438       |  |   | 17,641       |     |   | 17,246        | 
|Current portion of equipment financing                                    |  | 8      |  |   | 1,134        |  |   | -            |     |   | -             | 
|Total current liabilities                                                 |  |        |  |   | 46,441       |  |   | 35,875       |     |   | 34,855        | 
|                                                                          |  |        |  |   |              |  |   |              |     |   |               | 
|Deferred tax liabilities                                                  |  | 13     |  |   | 51,376       |  |   | 29,579       |     |   | 21,996        | 
|Long-term equipment financing                                             |  | 8      |  |   | 2,080        |  |   | -            |     |   | -             | 
|Provision for site
      reclamation and closure                          |  | 10     |  |   | 3,168        |  |   | 2,869        |     |   | 2,065         | 
|Other provisions                                                          |  |        |  |   | 1,097        |  |   | 1,264        |     |   | 1,138         | 
|Total liabilities                                                         |  |        |  |   | 104,162      |  |   | 69,587       |     |   | 60,054        | 
|                                                                          |  |        |  |   |              |  |   |              |     |   |               | 
|EQUITY                                                                    |  |        |  |   |              |  |   |              |     |   |               | 
|Issued capital                                                            |  | 12     |  |   | 89,653       |  |   | 89,419       |     |   | 82,630        | 
|Share-based payment reserve                                               |  |        |  |   | 13,242       |  |   | 12,527       |     |   | 9,169         | 
|Retained earnings                                                         |  |        |  |   | 61,457       |  |   | 46,114       |     |   | 8,382         | 
|Total equity                                                              |  |        |  |   | 164,352      |  |   | 148,060      |     |   | 100,181       | 
|Total liabilities and equity                                              |  |        |  | $ | 268,514      |  | $ | 217,647      |     | $ | 160,235       | 

Commitments and contingencies(note 19) Events
after the reporting period (note 21)

Approved by the Directors

|Bruce Bragagnolo | Director | Eugene Hodgson | Director
|------------------ | -------- | ---------------- | --------

The accompanying notes are an integral part of these
consolidated financial statements.

---

|TIMMINS GOLD CORP.CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY (In thousands of United States dollars,
except share numbers)
|----------------------------------------------------------------------------------------------------------------------------

|                                                                             |  |             |  |   |         |  |   | Share-  |   |   |          |  |   |         | 
|---------------------------------------------------------------------------- |  | ----------- |  | - | ------- |  | - | ------- | - | - | -------- |  | - | ------- | 
|                                                                             |  | Number of   |  |   |         |  |   | based   |   |   |          |  |   |         | 
|                                                                             |  | common      |  |   | Issued  |  |   | payment |   |   | Retained |  |   | Total   | 
|                                                                             |  | shares      |  |   | capital |  |   | reserve |   |   | earnings |  |   | equity  | 
|Balance at January 1, 2013                                                   |  | 144,084,045 |  | $ | 89,419  |  | $ | 12,527  |   | $ | 46,114   |  | $ | 148,060 | 
|Earnings and total comprehensive income
      for the year                   |  | -           |  |   | -       |  |   | -       |   |   | 15,343   |  |   | 15,343  | 
|Share-based payments                                                         |  | -           |  |   | -       |  |   | 784     |   |   | -        |  |   | 784     | 
|Issue of shares on exercise of share
      options                           |  | 75,000      |  |   | 165     |  |   | -       |   |   | -        |  |   | 165     | 
|Reclassification of grant date fair value on exercise
      of share options |  | -           |  |   | 69      |  |   | (69     | ) |   | -        |  |   | -       | 
|Balance at December 31, 2013                                                 |  | 144,159,045 |  | $ | 89,653  |  | $ | 13,242  |   | $ | 61,457   |  | $ | 164,352 | 
|                                                                             |  |             |  |   |         |  |   |         |   |   |          |  |   |         | 
|                                                                             |  |             |  |   |         |  |   |         |   |   |          |  |   |         | 
|Balance at January 1, 2012                                                   |  | 140,291,127 |  | $ | 82,630  |  | $ | 9,169   |   | $ | 8,382    |  | $ | 100,181 | 
|Earnings and total comprehensive income for
      the year                   |  | -           |  |   | -       |  |   | -       |   |   | 37,732   |  |   | 37,732  | 
|Share-based payments                                                         |  | -           |  |   | -       |  |   | 6,143   |   |   | -        |  |   | 6,143   | 
|Issue of shares on exercise of share options                                 |  | 3,575,000   |  |   | 3,647   |  |   | -       |   |   | -        |  |   | 3,647   | 
|Reclassification of grant
      date fair value on exercise of share options |  | -           |  |   | 2,785   |  |   | (2,785  | ) |   | -        |  |   | -       | 
|Shares issued for financing costs                                            |  | 217,918     |  |   | 357     |  |   | -       |   |   | -        |  |   | 357     | 
|Balance at December 31, 2012                                                 |  | 144,084,045 |  | $ | 89,419  |  | $ | 12,527  |   | $ | 46,114   |  | $ | 148,060 | 

The accompanying notes are an integral part of these
consolidated financial statements.

---

|TIMMINS GOLD CORP.                                         
|-----------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS             
|December 31, 2013                                          
|(In thousands of United States dollars, except where noted)

|1. | NATURE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Timmins Gold Corp. (“the Company”) was incorporated on March 17, 2005 under the laws of the Province of British Columbia, Canada. The Company is in the business of acquiring, exploring, developing and operating mineral
resource properties in Mexico, through its wholly-owned subsidiaries, Timmins Goldcorp Mexico, S.A. de C.V. and Molimentales del Noroeste, S.A. de C.V. (“MdN”) (collectively “the subsidiaries”). MdN owns the San Francisco
Mine which was placed into commercial production on April 1, 2010. The Company is listed for trading on the Toronto Stock Exchange under the symbol TMM and the New York Stock Exchange MKT under the symbol TGD. The registered office of the Company is
located at Suite 1900 - 570 Granville Street, Vancouver, British Columbia, Canada, V6C 3P1.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|2. | BASIS OF PREPARATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
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|   | e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

7

---

|TIMMINS GOLD CORP.                                         
|-----------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS             
|December 31, 2013                                          
|(In thousands of United States dollars, except where noted)

|2. | BASIS OF PREPARATION (Continued)
|-- | --------------------------------
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8

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|TIMMINS GOLD CORP.                                         
|-----------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS             
|December 31, 2013                                          
|(In thousands of United States dollars, except where noted)

|2. | BASIS OF PREPARATION (Continued)
|-- | --------------------------------
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9

---

|TIMMINS GOLD CORP.                                         
|-----------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS             
|December 31, 2013                                          
|(In thousands of United States dollars, except where noted)

|2. | BASIS OF PREPARATION (Continued)
|-- | --------------------------------
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10

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|3. | **SIGNIFICANT
      ACCOUNTING POLICIES**                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                   
|   | The significant accounting policies
      used in the preparation of these consolidated financial statements are as
      follows:
|   |                                                                                                                                   
|   | a)                                                                                                                                
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11

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
|-- | -------------------------------------------------
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   | f)                                               
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  

12

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              

13

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              

| | g) | **Provisions**
| | -- | --------------

A provision is recognized if, as a
result of a past event, the Company has a present legal or constructive
obligation that can be estimated reliably and it is probable that an outflow of
economic benefits will be required to settle the obligation.

Constructive obligations are
obligations that derive from the Companys actions where:

| |  |  | by an established pattern of past practice, published policies or a
  sufficiently specific current statement, the Company has indicated to other
  parties that it will accept certain responsibilities; and
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | as a result, the Company has created a valid expectation on the part of
  those other parties that it will discharge those responsibilities.                                                                 

Provisions are reviewed at the end of
each reporting period and adjusted to reflect managements current best estimate
of the expenditure required to settle the present obligation at the end of the
reporting period. If it is no longer probable that an outflow of resources
embodying economic benefits will be required to settle the obligation, the
provision is reversed. Provisions are reduced by actual expenditures for which
the provision was originally recognized. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects the
current market assessments of the time value of money and the risks specific to
the liability. The accretion of the discount is charged to earnings or loss for
the period.

| |  | i. | Provision for site reclamation and
  closure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |    | The Companys mining and exploration activities are
      subject to various laws and regulations governing the protection of the
      environment. The Company records the fair value of a provision for site
      reclamation and closure as a liability in the period in which it incurred
      a legal or constructive obligation associated with the reclamation of the
      mine site and the retirement of tangible long-lived assets that result
      from the acquisition, construction, development, and/or normal use of the
      assets.
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  |    | The obligation is measured initially at fair value based
      on estimated future cash flows derived using internal information and
      third party reports. The estimated cost is capitalized and included in the
      carrying value of the related mineral properties and is depreciated using
      either the straight-line method or UOP method, as
  appropriate.                                                                                                                                                                              

14

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|3. | **SIGNIFICANT ACCOUNTING POLICIES
      (Continued)**
|-- | -----------------------------------------------------

The provision is initially discounted
using a current market-based pre-tax discount rate and subsequently increased
for the unwinding of the discount. The unwinding of the discount is charged to
earnings or loss for the period.

At each reporting date, the Company
reviews its provision for site reclamation and closure to reflect the current
best estimate. The provision for site reclamation and closure is adjusted for
changes in factors such as the amount or timing of the expected underlying cash
flows, or the market-based pre-tax discount rate, with the offsetting amount
recorded to the site reclamation and closure asset included in mineral
properties which arises at the time of establishing the provision. The site
reclamation and closure asset is depreciated on the same basis as the related
asset.

It is possible that the Companys
estimate of the site reclamation and closure liability could change as a result
of change in regulations, the extent of environmental remediation required, the
means and technology of reclamation activities or cost estimates. Any such
changes could materially impact the estimated provision for site reclamation and
closure. Changes in estimates are accounted for prospectively from the period
the estimate is revised.

| | h) | Share-based payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Certain employees and directors of the Company receive a
      portion of their remuneration in the form of share options. The fair value
      of the share options, determined at the date of the grant, is charged to
      earnings or loss, with an offsetting credit to share-based payment
      reserve, over the vesting period. If and when the share options are
      exercised, the applicable original amounts of share-based payment reserve
      are transferred to issued capital.                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The fair value of a share-based payment is determined at
      the date of the grant. The estimated fair value of share options is
      measured using the Black-Scholes option pricing model. The Black-Scholes
      option pricing model requires the input of subjective assumptions,
      including the expected term of the option and share price volatility. The
      expected term of options granted is determined based on historical data on
      the average hold period before exercise, expiry or cancellation. Expected
      volatility is estimated with reference to the historical volatility of the
      share price of the Company.                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | These estimates involve inherent uncertainties and the
      application of managements judgement. The costs of share-based payments
      are recognized over the vesting period of the option. The total amount
      recognized as an expense is adjusted to reflect the number of options
      expected to vest at each reporting date. At each reporting date prior to
      vesting, the cumulative compensation expense representing the extent to
      which the vesting period has passed and managements best estimate of the
      share options that are ultimately expected to vest is computed. The
      movement in cumulative expense is recognized in earnings or loss with a
      corresponding entry to share-based payment reserve.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Share-based payments to non-employees are measured at the
      fair value of the goods or services received or the fair value of the
      equity instruments issued if it is determined that the fair value of the
      goods or services cannot be reliably measured, and are recorded at the
      date the goods or services are received.                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | No expense is recognized for share options that do not
      ultimately vest. Charges for share options that are forfeited before
      vesting are reversed from share-based payment reserve and expensed. For
      those share options that expire unexercised after vesting, the recorded
      value remains in share-based payment reserve.                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | i) | Issued capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Common shares are classified as issued capital. Costs
      directly attributable to the issue of common shares are recognized as a
      deduction from issued capital, net of any tax effects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | j) | Financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Financial assets, other than derivatives, are classified
      as held to maturity, available-for-sale, loans and receivables or fair
      value through profit or loss (FVTPL).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

15

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
|-- | -------------------------------------------------

Financial assets classified as
available-for-sale are measured initially at fair value plus transaction costs
and subsequently at fair value with unrealized gains and losses recognized in
other comprehensive income except for financial assets that are considered to be
impaired, in which case the impairment loss is charged to earnings or loss. The
Company has not classified any assets as available-for-sale for any period
presented.

Financial assets classified as loans
and receivables are measured initially at fair value plus transaction costs and
subsequently at amortized cost using the effective interest method. The
effective interest method is a method of calculating the amortized cost of a
financial asset and allocating the interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future
cash payments through the expected life of the financial asset, or, where
appropriate, a shorter period. The Companys cash and trade and other
receivables are classified as loans and receivables.

Financial assets classified as FVTPL
are measured on initial recognition and subsequently at fair value with
unrealized gains and losses recognized in earnings or loss. Transaction costs
are expensed for assets classified as FVTPL. The Company has not classified any
assets as FVTPL for any period presented.

| | k) | **Financial liabilities**
| | -- | -------------------------

Financial liabilities, which are trade
payables and accrued liabilities, vendor loan, equipment financing, loan
facility, provision for site reclamation and closure and other provisions, are initially recognized at fair
value less directly attributable transaction costs. Subsequently, financial
liabilities are measured at amortized cost using the effective interest method.

Financial liabilities classified as
FVTPL include financial liabilities held for trading and financial liabilities
designated upon recognition as FVTPL. Fair value changes on these liabilities
are recognized in earnings or loss.

| | l) | Impairment
| | -- | ----------

| |  | i. | Impairment of financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |    | At each reporting date, the Company assesses whether
      there is any objective evidence that a financial asset or a group of
      financial assets, other than financial assets classified as FVTPL, is
      impaired. A financial asset or a group of financial assets is impaired if
      there is objective evidence that the estimated future cash flows of the
      financial asset or the group of financial assets have been negatively
      impacted, and the impact can be reliably measured.

Objective evidence of impairment could
include the following:

| |  |  |  | significant financial difficulty of the issuer or counterparty;                              
| |  |  |  | ---------------------------------------------------------------------------------------------
| |  |  |  | default or delinquency in interest or principal payments; or                                 
| |  |  |  | it has become probable that the borrower will enter bankruptcy or
  financial reorganization.

An impairment loss in respect of a
financial asset measured at amortized cost is calculated as the difference
between its carrying amount and the present value of the estimated future cash
flows discounted at the assets original effective interest rate. Losses are
recognized in earnings or loss and reflected in an allowance account against
trade and other receivables. Interest on the impaired asset continues to be
recognized through the unwinding of the discount.

With the exception of
available-for-sale equity instruments, if, in a subsequent period, the amount of
the impairment loss decreases, the previously recognized impairment loss is
reversed through earnings or loss to the extent that the carrying amount of the
impaired financial asset at the date the impairment is reversed does not exceed
what the amortized cost would have been had the impairment not been recognized.

16

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
|-- | -------------------------------------------------

| |  |     | In respect to available-for-sale equity instruments,
      impairment losses previously recognized in earnings or loss are not
      reversed through earnings or loss. Any increase in fair value subsequent
      to an impairment loss is recognized in other comprehensive
  income.                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | ii. | Impairment of non-financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |     | At each reporting date, the Company reviews the carrying
      amounts of its non-financial assets to determine whether there are any
      indications of impairment. If any such indication exists such as decreases
      in metal prices, an increase in operating costs, a decrease in mineable
      reserves or a change in foreign exchange rate, the recoverable amount of
      the asset is estimated in order to determine the extent of the impairment,
      if any. In determining the recoverable amount, the Company also considers
      the net carrying amount of the asset, the ongoing costs required to
      maintain and operate the asset, and the use, value and condition of the
      asset.
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |     | Where the asset does not generate cash inflows that are
      independent with other assets, the Company estimates the recoverable
      amount of the cash-generating unit (CGU) to which the asset belongs. A
      CGU is the smallest identifiable group of assets that generates cash
      inflows that are largely independent of the cash inflows from other assets
      or group of assets. This generally results in the Company evaluating its
      non-financial assets on a property by property basis.                                                                                                                                                                                                 
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |     | The recoverable amount is determined as the higher of
      fair value less costs to sell and the assets value in use. Fair value is
      determined with reference to discounted estimated future cash flow
      analysis or to recent transactions involving dispositions of similar
      properties. In assessing value in use, the estimated future cash flows are
      discounted to their present value. Estimated future cash flows are
      calculated using estimated future production, recoverability of reserves,
      estimated future commodity prices and the expected future operating and
      capital costs.                                                                                   
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |     | The pre-tax discount rate applied to the estimated future
      cash flows reflects current market assessments of the time value of money
      and the risks specific to the asset for which the future cash flow
      estimates have not been adjusted.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |     | If the carrying amount of an asset or CGU exceeds its
      recoverable amount, the carrying amount of the asset or CGU is reduced to
      its recoverable amount. An impairment loss is recognized as a charge to
      earnings or loss. Non-financial assets that have been impaired are tested
      for possible reversal of the impairment whenever events or changes in
      circumstance indicate that the impairment may have reversed.                                                                                                                                                                                                                                                                       
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |     | Where an impairment subsequently reverses, the carrying
      amount of the asset or CGU is increased to the revised estimate of its
      recoverable amount, but only so that the increased carrying amount does
      not exceed the carrying amount that would have been determined (net of
      depletion and depreciation) had no impairment loss been recognized for the
      asset or CGU in prior periods. A reversal of impairment is recognized as a
      gain in earnings or loss.                                                                                                                                                                                                                        

| | m) | Taxes
| | -- | -----
| |    |      
| |    | i.   
| |    |      
| |    |      
| |    |      
| |    |      
| |    |      
| |    | ii.  
| |    |      
| |    |      

17

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
      (Continued)
|-- | -------------------------------------------------

Deferred tax liabilities are recognized
for all taxable temporary differences except where the deferred tax liability
arises from the initial recognition of goodwill, or the initial recognition of
an asset or liability in a transaction that is not a business combination and,
at the time of the transaction, affects neither the accounting earnings nor
taxable earnings or loss.

Deferred tax assets are recognized for
all deductible temporary differences, carry forwards of unused tax losses and
tax credits, to the extent that it is probable that taxable earnings will be
available against which the deductible temporary differences, and the carry
forward of unused tax losses can be utilized, except where the deferred tax
asset related to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting
earnings nor taxable earnings or loss.

The carrying amounts of deferred tax
assets are reviewed at each reporting date and are adjusted to the extent that
it is no longer probable that sufficient taxable earnings will be available to
allow all or part of the asset to be utilized. To the extent that an asset not
previously recognized fulfills the criteria for recognition, a deferred tax
asset is recorded.

Deferred tax is measured on an
undiscounted basis using the tax rates that are expected to apply in the period
when the liability is settled or the asset is realized, based on tax rates and
tax laws enacted or substantially enacted at the reporting date. Current and
deferred tax relating to items recognized directly in equity is recognized in
equity and not in earnings or loss.

| |  | iii. | Mining taxes and royalties
| |  | ---- | --------------------------

Mining taxes and royalties are treated
and disclosed as current and deferred taxes if they have the characteristics of
an income tax. This is considered to be the case when they are imposed under
government authority and the amount payable is calculated by reference to
revenue derived (net of any allowable deductions) after adjustment for items
comprising temporary differences.

| | n) | Earnings from mine operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Earnings from mine operations is an additional generally
      accepted accounting principle (GAAP) measure calculated by subtracting
      the cost of sales, which includes production costs and depletion and
      depreciation, from the Companys metal revenues.                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | o) | Earnings from operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Earnings from operations is an additional GAAP measure
      calculated by subtracting other operational expenses from the Companys
      earnings from mine operations. Other operational expenses are those that
      are not directly attributable to the production of inventory and include
      corporate and administrative expenses and any impairment of assets
      incurred during the period.                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | p) | Earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Basic earnings per share (EPS) is calculated by
      dividing the earnings and total comprehensive income of the Company by the
      basic weighted average number of common shares outstanding during the period.
      For purposes of calculating diluted EPS, the proceeds from the potential
      exercise of dilutive share options and share purchase warrants with
      exercise prices that are below the average market price of the underlying
      shares are assumed to be used in purchasing the Companys common shares at
      their average market price for the period.

18

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|3.     | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)                                                                                                                                                         
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                       
|       |                                                                                                                                                                                                       
|       |                                                                                                                                                                                                       
|       | **q)**                                                                                                                                                                                                
|       |                                                                                                                                                                                                       
|       |                                                                                                                                                                                                       
|       |                                                                                                                                                                                                       
|       |                                                                                                                                                                                                       
|       |                                                                                                                                                                                                       
|       |                                                                                                                                                                                                       
|       |                                                                                                                                                                                                       
|       | **r)**                                                                                                                                                                                                
|       |                                                                                                                                                                                                       
|       |                                                                                                                                                                                                       
|       |                                                                                                                                                                                                       
|**4.** | CHANGES IN ACCOUNTING STANDARDS                                                                                                                                                                       
|       |                                                                                                                                                                                                       
|       | The Company has applied the following new and revised
      IFRS standards in these consolidated financial statements and has recast
      the 2012 comparative information accordingly in note 4a)ii.
|       |                                                                                                                                                                                                       
|       | **a)**                                                                                                                                                                                                

| |  | i. | New and revised standards adopted with no material
      impact on the Companys consolidated financial statements                                                                          
| |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    |                                                                                                                                                                                             
| |  |    | The Company has evaluated the following new and revised
      IFRS standards and has determined there to be no material impact on the
      consolidated financial statements upon adoption:
| |  |    |                                                                                                                                                                                             
| |  |    | a.                                                                                                                                                                                          
| |  |    |                                                                                                                                                                                             
| |  |    |                                                                                                                                                                                             

19

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|4. | CHANGES IN ACCOUNTING STANDARDS
      (Continued)
|-- | -------------------------------------------------

| | b. | Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | In May 2011, the IASB issued IFRS 10 - Consolidated
      Financial Statements(IFRS 10), which supersedes SIC 12 - Consolidation -
      Special Purpose Entitiesand the requirements relating to consolidated
      financial statements in IAS 27 - Consolidated and Separate Financial
      Statementswhich was reissued as IAS 27 - Separate Financial
      Statements. IFRS 10 establishes control as the basis for an investor
      to consolidate its investees; and defines control as an investors power
      over an investee with exposure, or rights, to variable returns from the
      investee and the ability to affect the investors returns through its
      power over the investee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | In addition, the IASB issued IFRS 12 - Disclosure of
      Interests in Other Entities(IFRS 12),which combines and enhances the
      disclosure requirements for the Companys subsidiaries, joint
      arrangements, associates and unconsolidated structured entities. The
      requirements of IFRS 12 include reporting of the nature of risks
      associated with the Companys interests in other entities, and the effects
      of those interests on the Companys consolidated financial
    statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | c. | Joint arrangements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | In May 2011, the IASB issued IFRS 11 - Joint
      Arrangements(IFRS 11)which supersedes IAS 31 - Interests in Joint Venturesand SIC-13 - Jointly Controlled Entities - Non-Monetary
      Contributions by Venturers.Under IFRS 11, joint arrangements are classified as joint
      operations or joint ventures based on the rights and obligations of the
      parties to the joint arrangements. A joint operation is a joint
      arrangement whereby the parties that have joint control of the arrangement
      (joint operators) have rights to the assets, and obligations for the
      liabilities, relating to the arrangement. A joint venture is a joint
      arrangement whereby the parties that have joint control of the arrangement
      (joint venturers) have rights to the net assets of the arrangement. IFRS
      11 requires that a joint operator recognize its portion of assets,
      liabilities, revenues and expenses of a joint arrangement, while a joint
      venturer recognizes its investment in a joint arrangement using the equity
      method. Concurrently, IAS 28 - Investments in Associates and Joint
      Ventureswas reissued which establishes the accounting for investments
      in associates and sets out the requirements for the application of the
      equity method when accounting for investments in associates as joint
      ventures.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | d. | Fair value measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | In May 2011, as a result of the convergence project
      undertaken by the IASB and the US Financial Accounting Standards Board to
      develop common requirements for defining and measuring fair value and for
      disclosing information about fair value measurements, the IASB issued IFRS
      13 - Fair Value Measurement(IFRS 13). IFRS 13 defines fair value and sets
      out a single framework for measuring fair value which is applicable to all
      IFRSs that require or permit fair value measurements or disclosures about
      fair value measurements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | IFRS 13 requires that when using a valuation technique to
      measure fair value, the use of relevant observable inputs should be
      maximized while unobservable inputs should be minimized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | e. | Financial statement presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | In June 2011, the IASB issued amendments to IAS 1 -
      Presentation of Financial Statements(IAS 1)that require an entity to
      group items presented in the statement of comprehensive income on the
      basis of whether they may be reclassified to earnings or loss subsequent
      to initial recognition. For those items presented before taxes, the
      amendments to IAS 1 also require that the taxes related to the two
      separate groups be presented separately.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

20

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|4. | **CHANGES IN ACCOUNTING STANDARDS
      (Continued)**
|-- | -----------------------------------------------------

| | f. | Employee benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | In June 2011, the IASB issued amendments to IAS 19 -
      Employee Benefits (IAS 19)that involve significant changes to
      the accounting for defined benefit plans and other employee benefits.
      Other amendments include changes to the date of recognition of liabilities
      for termination benefits, and changes to the definitions of short-term
      employee benefits and other long-term employee benefits which impact the
      classification of liabilities associated with those
  benefits.

| | ii. | New and revised standards adopted with material impact
      on the Companys consolidated financial statements                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | In October 2011, the IASB issued IFRIC 20 - Stripping
      Costs in the Production Phase of a Surface Mine(IFRIC 20). IFRIC 20
      clarifies the requirements for accounting for the costs of stripping
      activity in the production phase when two benefits accrue: (i) usable ore
      that can be used to produce inventory; and (ii) improved access to further
      quantities of material that will be mined in future periods. IFRIC 20
      includes guidance on transition for pre-existing stripping
  assets.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The Company has determined that the impact of the above
      standard is material to its consolidated financial statements due to
      changes to significant estimates and assumptions concerning
      componentization, capitalization, and depletion, as well as the
      elimination of pre-existing stripping assets that no longer existed at the
      start of the comparative period (January 1, 2012).                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The adoption of the standard had the following impact on
      the consolidated statement of financial position at January 1, 2012 and at
      December 31, 2012:                                                                                                                                                                                                                                                                                                                                                                  

| |                                                                               |   | At January 1, 2012 |  |   | At December 31,
      2012 |  
| | ----------------------------------------------------------------------------- | - | ------------------ |  | - | -------------------------- | -
| |                                                                               |   | As                 |  |   |                            |  
| |                                                                               |   | previously         |  |   | IFRIC 20                   |  
| |                                                                               |   | reported           |  |   | adjustment                 |  
| | Inventories                                                                   | $ | 29,183             |  | $ | -                          |  
| | Mineral properties, plant and equipment, exploration and
      evaluation (1) | $ | 107,677            |  | $ | (1,985                     | )
| | Total assets                                                                  |   | 162,220            |  |   | (1,985                     | )
| | Deferred tax liabilities                                                      | $ | 22,562             |  | $ | (566                       | )
| | Retained earnings                                                             | $ | 9,801              |  | $ | (1,419                     | )

| | (1) | The impact of IFRIC 20 applies to the deferred stripping
      balance previously disclosed of $25,168 at December 31, 2012 (January 1,
      2012 - $21,268). The adjustment shown is the change to the deferred
      stripping balance, net of accumulated
depreciation.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|4. | **CHANGES IN ACCOUNTING STANDARDS
      (Continued)**
|-- | -----------------------------------------------------

The adoption of the standard had the
following impact on the consolidated statement of earnings and total
comprehensive income for the year ended December 31, 2012:

| |                                             |   | Year ended December
      31, 2012 | 
| | ------------------------------------------- | - | ---------------------------------- | 
| |                                             |   | As                                 | 
| |                                             |   | previously                         | 
| |                                             |   | reported                           | 
| | Cost of sales (1)                           | $ | 79,579                             | 
| | Earnings before income taxes                | $ | 57,139                             | 
| | Deferred tax expense                        |   | 6,919                              | 
| | Earnings and total
    comprehensive income | $ | 36,068                             | 

| |  | (1) | Cost of sales includes depreciation and depletion. The
      decrease of $2,328 for the year ended December 31, 2012 cost of sales
      includes a reduction of $3,783 to costs of contract mining and a $1,455
      increase to depreciation and depletion.
| |  | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The adoption of the standard had the
following impact on the consolidated statement of cash flows for the year ended
December 31, 2012:

| |                                       |   | Year ended December
      31, 2012 |  
| | ------------------------------------- | - | ---------------------------------- | -
| |                                       |   | As                                 |  
| |                                       |   | previously                         |  
| |                                       |   | reported                           |  
| | Earnings before income taxes          | $ | 57,139                             |  
| | Depletion and depreciation            | $ | 7,934                              |  
| | Inventories                           |   | (10,167                            | )
| | Cash provided by operating activities | $ | 46,869                             |  
| | Cash used in investing activities     | $ | (34,339                            | )
| | Cash provided by financing activities | $ | 1,782                              |  

| | b) | Future accounting standards
| | -- | ---------------------------
| |    |                            
| |    | i.                         
| |    |                            
| |    |                            
| |    |                            
| |    |                            
| |    |                            
| |    |                            

22

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|**4.** | CHANGES IN ACCOUNTING STANDARDS
      (Continued)
|------ | -------------------------------------------------
|       |                                                  
|       |                                                  
|       |                                                  
|       |                                                  
|       |                                                  
|**5.** | EXPENSES                                         
|       |                                                  
|       | **a)**                                           

| |                                                            |  | Years ended December
      31, | 
| | ---------------------------------------------------------- |  | ------------------------------ | 
| |                                                            |  | Note                           | 
| | Costs of contract mining
      (1)                         |  |                                | 
| | Crushing and gold recovery costs                           |  |                                | 
| | Mine site administration
      costs                       |  |                                | 
| | Transport and refining                                     |  |                                | 
| | Net change in inventories                                  |  |                                | 
| | Production costs                                           |  |                                | 
| | Depreciation and depletion                                 |  |                                | 
| | Cost
      of sales (including depreciation and depletion) |  | 4a)ii                          | 

| | (1) | Commencing July 1, 2013, mining costs associated with
      stockpiling ore during the period which are greater than the net
      realizable value of the ore stockpiled during the period are included in
      cost of sales. During the year ended December 31, 2013, $847 (December 31,
      2012 - $nil) of mining costs associated with stockpiling ore are included
      in cost of sales.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Corporate and administrative expenses:
| | -- | --------------------------------------

| |                                       |  |      |  |       | Years ended December
      31, | 
| | ------------------------------------- |  | ---- |  | ----- | ------------------------------ | 
| |                                       |  | Note |  |       | 2013                           | 
| | Salaries                              |  |      |  | **$** | 4,253                          | 
| | Consulting and professional fees      |  |      |  |       | 2,015                          | 
| | Share-based payments                  |  | 12b) |  |       | 784                            | 
| | Property payment                      |  |      |  |       | -                              | 
| | Rent and office costs                 |  |      |  |       | 549                            | 
| | Administrative and other              |  |      |  |       | 3,591                          | 
| | Corporate and administrative expenses |  |      |  | **$** | 11,192                         | 

23

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|5. | EXPENSES (Continued)
|-- | --------------------
|   |                     
|   | c)                  

| |                                                               |   | Years ended December
      31, | 
| | ------------------------------------------------------------- | - | ------------------------------ | 
| |                                                               |   | 2013                           | 
| | Interest on loan facility                                     | $ | 1,398                          | 
| | Accretion of loan facility                                    |   | 263                            | 
| | Accretion of provision for
      site reclamation and closure |   |                                | 
| | and
      other provisions                                    |   | 46                             | 
| | Finance expense                                               | $ | 1,707                          | 

|6. | TRADE AND OTHER RECEIVABLES
|-- | ---------------------------

| |                  |   | December 31, |  |   | December 31, |  |   | January 1, | 
| | ---------------- | - | ------------ |  | - | ------------ |  | - | ---------- | 
| |                  |   | 2013         |  |   | 2012         |  |   | 2012       | 
| | Trade receivable | $ | 1,228        |  | $ | 1,483        |  | $ | 1,652      | 
| | VAT receivable   |   | 12,433       |  |   | 6,860        |  |   | 6,235      | 
| | Other            |   | 1,017        |  |   | 2,227        |  |   | 367        | 
| |                  | $ | 14,678       |  | $ | 10,570       |  | $ | 8,254      | 

VAT receivable is value added tax
payments made by the Company, which in Mexico and Canada are refundable. The
Company elects to use VAT amounts owed to it to settle income tax instalments
payable to the Mexican government. As a result, the Company currently pays no
income tax cash instalments and receives reduced amounts of VAT cash refunds. At
December 31, 2013, the VAT receivable includes $4,650 for the purpose of
settling income taxes payable at year end (December 31, 2012 - $nil). Subsequent
to December 31, 2013, $3,143 of VAT was received by the Company.

|7. | INVENTORIES
|-- | -----------

| |                                             |       |   | December 31, |   |   | December 31, |   |   | January 1, |  
| | ------------------------------------------- | ----- | - | ------------ | - | - | ------------ | - | - | ---------- | -
| |                                             | Note  |   | 2013         |   |   | 2012         |   |   | 2012       |  
| | Ore in process                              |       | $ | 33,704       |   | $ | 24,169       |   | $ | 23,174     |  
| | Finished metal inventory                    |       |   | 1,021        |   |   | 213          |   |   | -          |  
| | Supplies                                    |       |   | 8,378        |   |   | 8,002        |   |   | 6,009      |  
| | Non-current unprocessed ore stockpile (1)   |       |   | 6,523        |   |   | 10,372       |   |   | 4,481      |  
| |                                             |       |   | 49,626       |   |   | 42,756       |   |   | 33,664     |  
| | Less: non-current unprocessed ore stockpile |       |   | (6,523       | ) |   | (10,372      | ) |   | (4,481     | )
| |                                             | 4a)ii | $ | 43,103       |   | $ | 32,384       |   | $ | 29,183     |  

| | (1) | During the year ended December 31, 2013, the Company
      recognized total impairment charges of $6,340 (year ended December 31,
      2012 - $nil) in relation to the non-current unprocessed ore
    stockpile.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The costs of inventories recognized as
an expense for the year ended December 31, 2013 were $83,985 (year ended
December 31, 2012 - $63,908) and are included in cost of sales.

24

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|8. | MINERAL PROPERTIES, PLANT AND EQUIPMENT,
      EXPLORATION AND EVALUATION
|-- | -------------------------------------------------------------------------

| |                                                                 |  |       |  |   |               |  |   |           |  |   | Exploration |  |   |         | 
| | --------------------------------------------------------------- |  | ----- |  | - | ------------- |  | - | --------- |  | - | ----------- |  | - | ------- | 
| |                                                                 |  |       |  |   | Mineral       |  |   | Plant and |  |   | and         |  |   |         | 
| |                                                                 |  | Note  |  |   | properties(a) |  |   | equipment |  |   | evaluation  |  |   | Total   | 
| | Cost                                                            |  |       |  |   |               |  |   |           |  |   |             |  |   |         | 
| | At January 1, 2013                                              |  | 4a)ii |  | $ | 108,117       |  | $ | 52,744    |  | $ | 3,673       |  | $ | 164,534 | 
| | Expenditures (1)                                                |  |       |  |   | 28,628        |  |   | 31,604    |  |   | 1,312       |  |   | 61,544  | 
| | Change in reclamation obligation                                |  |       |  |   | 261           |  |   | -         |  |   | -           |  |   | 261     | 
| | At December 31, 2013                                            |  |       |  |   | 137,006       |  |   | 84,348    |  |   | 4,985       |  |   | 226,339 | 
| | Accumulated depreciation and
      depletion At January 1, 2013 |  | 4a)ii |  |   | 16,648        |  |   | 10,739    |  |   | -           |  |   | 27,387  | 
| | Depreciation and depletion                                      |  |       |  |   | 10,488        |  |   | 8,021     |  |   | -           |  |   | 18,509  | 
| | At December 31, 2013                                            |  |       |  |   | 27,136        |  |   | 18,760    |  |   | -           |  |   | 45,896  | 
| | Carrying amount at
      December 31, 2013                      |  |       |  | $ | 109,870       |  | $ | 65,588    |  | $ | 4,985       |  | $ | 180,443 | 

| | (1) | During the third quarter of 2013, the Company entered
      into an agreement with an equipment supplier (the Supplier) to finance
      the remaining portion of an equipment purchase totalling $4,862 (excluding
      VAT) of which the Company had previously paid $1,459 (excluding VAT). The
      financing agreement carries an annual interest rate of 7.2% and the
      remaining balance of $3,403 (excluding VAT) is payable in 36 monthly
      instalments which include equal principal repayments of $95. Legal fees
      and other directly attributable transaction costs totalled $28. The
      current and long-term portions of the equipment financing total $1,134 and
      $2,080, respectively.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                 |  |       |  |   |            |     |   |           |  |   | Exploration |  |   |         | 
| | --------------------------------------------------------------- |  | ----- |  | - | ---------- | --- | - | --------- |  | - | ----------- |  | - | ------- | 
| |                                                                 |  |       |  |   | Mineral    |     |   | Plant and |  |   | and         |  |   |         | 
| |                                                                 |  | Note  |  |   | properties | (a) |   | equipment |  |   | evaluation  |  |   | Total   | 
| | Cost                                                            |  |       |  |   |            |     |   |           |  |   |             |  |   |         | 
| | At January 1, 2012                                              |  | 4a)ii |  | $ | 83,164     |     | $ | 37,864    |  | $ | 2,364       |  | $ | 123,392 | 
| | Expenditures                                                    |  |       |  |   | 24,172     |     |   | 14,880    |  |   | 1,309       |  |   | 40,361  | 
| | Change in reclamation obligation                                |  |       |  |   | 781        |     |   | -         |  |   | -           |  |   | 781     | 
| | At December 31, 2012                                            |  |       |  |   | 108,117    |     |   | 52,744    |  |   | 3,673       |  |   | 164,534 | 
| | Accumulated depreciation and depletion At
      January 1, 2012 |  | 4a)ii |  |   | 10,256     |     |   | 7,444     |  |   | -           |  |   | 17,700  | 
| | Depreciation and depletion                                      |  |       |  |   | 6,392      |     |   | 3,295     |  |   | -           |  |   | 9,687   | 
| | At
      December 31, 2012                                      |  |       |  |   | 16,648     |     |   | 10,739    |  |   | -           |  |   | 27,387  | 
| | Carrying amount at January 1,
      2012                        |  | 4a)ii |  |   | 72,908     |     |   | 30,420    |  |   | 2,364       |  |   | 105,692 | 
| | Carrying amount at December 31, 2012                            |  | 4a)ii |  | $ | 91,469     |     | $ | 42,005    |  | $ | 3,673       |  | $ | 137,147 | 

| | a) | **Mineral properties**
| | -- | ----------------------

| |                                   |  |       |  |   | December 31, |  |   | December 31, |  |   | January 1, | 
| | --------------------------------- |  | ----- |  | - | ------------ |  | - | ------------ |  | - | ---------- | 
| |                                   |  | Note  |  |   | 2013         |  |   | 2012         |  |   | 2012       | 
| | Depletable mineral property       |  |       |  | $ | 94,003       |  | $ | 77,830       |  | $ | 67,101     | 
| | Non-depletable mineral properties |  |       |  |   | 15,867       |  |   | 13,639       |  |   | 5,807      | 
| |                                   |  | 4a)ii |  | $ | 109,870      |  | $ | 91,469       |  | $ | 72,908     | 

25

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|8. | MINERAL PROPERTIES, PLANT AND EQUIPMENT,
      EXPLORATION AND EVALUATION (Continued)
|-- | -------------------------------------------------------------------------------------

| | i.  | San Francisco Property                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The San Francisco Property is located in Santa Ana,
      Sonora, Mexico. Commercial production began April 1, 2010. The Company
      continues to conduct and incur some exploration and development costs
      which are being capitalized. At December 31, 2013, mineral properties
      includes $34,171 (December 31, 2012 - $26,003; January 1, 2012 - $19,283)
      of net deferred stripping costs.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                
| | ii. | La Chicharra Property                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The La Chicharra Property is also located in Santa Ana,
      Sonora, Mexico adjacent to the San Francisco Property, and is considered
      part of the overall San Francisco Gold Property. The La Chicharra Property
      is under active exploration and development, but is not yet in commercial
      production and is therefore considered
non-depletable.                                           

| | b) | **Exploration and evaluation**
| | -- | ------------------------------

The Company is holding and exploring a
number of mineral properties in Mexico which are included in exploration and
evaluation.

| | i.  | El Picacho Property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | On December 11, 2007, the Company entered into an
      exploration agreement with the option to acquire a 100% interest in the 11
      mining properties that comprise the El Picacho Project in Sonora, Mexico.
      The agreement, which was renegotiated in March 2012, requires the Company
      to make periodic payments totalling $250 up to April 2014. At December 31,
      2013, a cumulative total of $293 has been paid. The vendor will retain a
      1.5% net smelter return interest, which is limited to $1,500. The vendor
      is obligated to sell or transfer to the Company his right to the royalty
      at any time, upon the Companys request, for which the Company will pay
      $500 for every half per cent (0.5%), to a maximum of $1,500.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | The Company has also staked an additional 6,500 hectares
      surrounding the claims and now controls over 7,200 hectares in the El
      Picacho area.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ii. | Other properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | During the fiscal year ended March 31, 2008, the Company
      acquired the mineral rights to 60,000 hectares in four claim blocks by
      staking the El Capomo Property in Nayarit, Mexico.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | On November 23, 2010, the Company entered into a property
      option agreement to earn an interest in the San Onesimo, Zindy and San
      Fernando mineral concessions located in Zacatecas, Mexico. To earn its
      interest, the Company is required to make payments of up to $2,000 at
      various dates up to January 2015. At December 31, 2013, a cumulative total
      of $270 has been paid.                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | On November 24, 2010, the Company entered into a property
      option agreement to earn an interest in the Quila mineral concession
      located in Jalisco, Mexico. During the year ended December 30, 2012, the
      Company decided not to pursue earning its interest in the Quila concession
      and paid a mandatory property payment of $395. The value of the
      capitalized mineral property was $nil.                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | During 2011, the Company received title to the Santa
      Maria del Oro claim in Jalisco, San Onesimo claims in Mazapil- Concepcion
      del Oro, and the Patricia and Norma concessions in the municipality of
      Trincheras, Sonora, Mexico.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     | On June 1, 2012, the Company entered into a property
      option agreement to earn an interest in the Sarai and Emanuel mineral
      concessions located in Zacatecas, Mexico. To earn its interest, the
      Company is required to make payments of up to $600 at various dates up to
      June 2017. At December 31, 2013, no payments have been
  made.                                                                                                                                                                                                                                                                                                                                                                                                                  

26

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|9. | TRADE PAYABLES AND ACCRUED LIABILITIES
|-- | --------------------------------------

| |                      |  |      |  |       | December 31, |  |   | December 31, |  |   | January 1, | 
| | -------------------- |  | ---- |  | ----- | ------------ |  | - | ------------ |  | - | ---------- | 
| |                      |  | Note |  |       | 2013         |  |   | 2012         |  |   | 2012       | 
| | Trade payables       |  |      |  | **$** | **23,958**   |  | $ | 12,019       |  | $ | 11,632     | 
| | Income taxes payable |  |      |  |       | 834          |  |   | 2,640        |  |   | 3,932      | 
| | Accrued liabilities  |  |      |  |       | 1,821        |  |   | 1,795        |  |   | 273        | 
| | Other                |  | 11   |  |       | 531          |  |   | 55           |  |   | 47         | 
| |                      |  |      |  | **$** | **27,144**   |  | $ | 16,509       |  | $ | 15,884     | 

|10. | **PROVISION FOR SITE RECLAMATION AND
      CLOSURE**
|--- | ----------------------------------------------------

| | Balance at January 1, 2012                     | $ | 2,065 | 
| | ---------------------------------------------- | - | ----- | 
| | Accretion of discounted cash flows             |   | 23    | 
| | Change in estimated cash flows and assumptions |   | 781   | 
| | Balance at December 31, 2012                   | $ | 2,869 | 
| | Accretion of discounted cash
      flows       |   | 38    | 
| | Change in estimated cash flows and assumptions |   | 261   | 
| | Balance at December 31, 2013                   | $ | 3,168 | 

The provision for site reclamation and
closure consists of mine closure costs, reclamation and retirement obligations
for mine facilities and infrastructure.

During the year ended December 31,
2013, the Company reassessed its provision for site reclamation and closure
based on independent technical reports and to reflect the additional liability
of mining operations during the year.

The total undiscounted amount of
estimated cash flows required to settle the retirement obligations of the San
Francisco Property is $4,540 (December 31, 2012 - $2,973). The cash flows have
been inflated by the rate of 4.0% which is consistent with the rate used for the
year ended December 31, 2012, and discounted using the pre-tax risk-free rate of
3.0% (December 31, 2012 - 1.4%) . The provision for site reclamation and closure
is not expected to be paid in the near term and is intended to be funded from
cash balances at the time of the mine closure.

|11. | LOAN FACILITY
|--- | -------------

On July 5, 2012, the Company
renegotiated the terms of its C$18,000 loan facility (the loan facility) with
Sprott Asset Management LP (the Lender) (original loan facility signed June 1,
2011). The loan facility carried an interest rate of 8.0% per annum and was
repayable in full on or before December 31, 2013. As part of the terms to the
renegotiation of the loan facility, the Company paid a fee to the Lender equal
to 2.0% of the loan facility balance, payable in common shares of the Company
priced at a 10.0% discount to the 10 day weighted average closing price of the
shares; 217,918 shares were issued and valued at C$362 ($357). In the event the
loan had not been repaid by July 28, 2013, an anniversary fee of 1.0% of the
loan amount outstanding on that date (the anniversary fee) was to be paid to
the lender in shares priced at the same discount on that date. These fees, in
addition to other directly attributable transaction costs, totalling C$603
($595), were included in the fair value of the loan facility, and amortized over
the term of the loan using the effective interest method. During June 2013, the
anniversary fee payment was waived, which resulted in a C$154 ($154) adjustment
to the carrying value of the loan.

During December 2013, the Company
negotiated to extend the loan facility 12 months beyond the original expiry date
of December 31, 2013 in exchange for 300,000 common shares of the Company. The
shares were issued on January 24, 2014 and had a fair value of C$450 ($407) at
the date of issue. The liability for the fair value of the common shares issued
is included in trade payables and accrued liabilities for the year ended
December 31, 2013.

27

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|11. | **LOAN FACILITY (Continued)**
|--- | -----------------------------

There is a four month holding period on
the common shares. The amended loan facility will now be repayable in full on or
before December 31, 2014 with a stated interest rate of 9.0% per annum.

For the year ended December 31, 2013,
the effective interest rate of the debt agreement was 8.9% (year ended December
31, 2012 - 10.7%) .

Under the terms of the loan facility,
the Company has pledged all of its assets (including the assets of its
subsidiaries) in favour of the Lender as security over the loan facility. In
addition, the subsidiaries have each provided guarantees to the Lender for the
repayment of any amounts advanced to the Company under the terms of the loan
facility.

At December 31, 2013 and 2012, no
accrued interest on the loan facility was included in trade payables and accrued
liabilities.

|12. | **EQUITY**
|--- | ----------

| | a) | **Authorized share capital**
| | -- | ----------------------------

| |  | Unlimited number of common shares without par value. These shares have
  voting rights and their holders are entitled to receive dividend payments; and                                                                            
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Unlimited number of convertible preference shares without par value, with
  the same rights as the common shares on dissolution and similar events. These
  shares have no voting rights and are not entitled to dividend payments.

At December 31, 2013, there were
144,159,045 issued and outstanding common shares (December 31, 2012 -
144,084,045).

| | b) | **Share options**
| | -- | -----------------

The Company has an incentive share
option plan (the plan) in place under which it is authorized to grant share
options to executive officers, directors, employees and consultants. The plan
allows the Company to grant share options up to a maximum of 10.0% of the number
of issued shares of the Company.

Share options granted under the plan
will have a term not to exceed five years, have an exercise price not less than
the Discounted Market Price as defined by the TSX Corporate Finance Manual and
vest over periods up to two years.

Share option transactions and the
number of share options outstanding during the year ended December 31, 2013 and
2012 are summarized as follows:

| |                                      |  | Number of share |   |  | Weighted average    | 
| | ------------------------------------ |  | --------------- | - |  | ------------------- | 
| |                                      |  | options         |   |  | exercise price (C$) | 
| | Outstanding at January 1,
      2012 |  | 8,850,000       |   |  | 1.60                | 
| | Granted                              |  | 4,550,000       |   |  | 2.58                | 
| | Exercised                            |  | (3,575,000      | ) |  | 1.02                | 
| | Forfeited                            |  | (850,000        | ) |  | 2.47                | 
| | Expired                              |  | (25,000         | ) |  | 0.75                | 
| | Outstanding at December 31, 2012     |  | 8,950,000       |   |  | 2.25                | 
| | Granted                              |  | 2,800,000       |   |  | 1.25                | 
| | Exercised                            |  | (75,000         | ) |  | 2.15                | 
| | Forfeited                            |  | (300,000        | ) |  | 2.74                | 
| | Outstanding at December 31, 2013     |  | 11,375,000      |   |  | 1.99                | 
| | Exercisable at December 31, 2013     |  | 9,275,000       |   |  | 2.16                | 

28

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|12. | **EQUITY (Continued)**
|--- | ----------------------

Share options outstanding and
exercisable at December 31, 2013 are as follows:

Weighted
    
    
    
    
    
    
    
    
    WeightedWeighted
    
    
    average
    
    
    
    
    
    Weighted
    
    
    averageExercise
    
    Number of
    
    
    average
    
    
    remaining life
    
    
    Number of
    
    
    average
    
    
    remaining lifeprice range
    
    options
    
    
    exercise price
    
    
    of options
    
    
    options
    
    
    exercise price
    
    
    of options(C$)
    
    outstanding
    
    
    (C$)
    
    
    (years)
    
    
    exercisable
    
    
    (C$)
    
    
    (years)1.00 - 2.33
    
    4,625,000
    
    
    1.17
    
    
    3.39
    
    
    2,525,000
    
    
    1.10
    
    
    2.072.34
      - 2.75
    
    6,750,000
    
    
    2.55
    
    
    2.74
    
    
    6,750,000
    
    
    2.55
    
    
    2.7411,375,000
    
    
    1.99
    
    
    3.00
    
    
    9,275,000
    
    
    2.16
    
    
    2.56


The weighted average exercise price at
the date of exercise for the 75,000 share options exercised during the year
ended December 31, 2013 (year ended December 31, 2012 - 3,575,000) was C$2.15
(year ended December 31, 2012 - C$1.02) .

The fair value of share options
recognized as an expense during the year ended December 31, 2013 was $784 (year
ended December 31, 2012 - $6,143). There were 2,800,000 share options granted
during the year ended December 31, 2013 (year ended December 31, 2012 -
4,550,000). During the years ended December 31, 2013 and 2012, the weighted
average grant date fair value per option of the share options granted was C$1.25
and C$1.45, respectively.

The following are the weighted average
assumptions used for the Black-Scholes option pricing model valuation of share
options granted during the years ended December 31, 2013 and 2012:

| |                          | Years ended December 31,
| | ------------------------ | ------------------------
| |                          | 2013                    
| | Risk-free interest rate  | 1.5%                    
| | Expected life of options | 4.1 years               
| | Annualized volatility    | 63.0%                   
| | Forfeiture rate          | 2.2%                    
| | Dividend rate            | 0.0%                    

The risk-free rate of periods within
the expected life of the share option is based on the Canadian government bond
rate. The expected life of share options granted represents the period of time
that share options granted are expected to be outstanding. Expected volatilities
are based on historical volatility of the Companys shares listed on the TSX.
The expected forfeiture rate represents the expectation of forfeitures occurring
within the vesting period.

|13. | **INCOME TAXES**
|--- | ----------------

For the year ended December 31, 2013,
the Company incurred $3,099 of current income tax expense (year ended December
31, 2012 - $14,152).

For the year ended December 31, 2013,
the Company incurred $21,796 of deferred income tax expense (year ended December
31, 2012 - $7,583). The amounts in both periods relate primarily to recognizing
the tax effects on changes in tax rates and in timing differences from mineral
property and equipment balances.

| | a) | Rate changes
| | -- | ------------

During December 2013, the 2014 Tax
Reform (the Tax Reform) was published in Mexicos official gazette with
changes taking effect January 1, 2014. The Tax Reform eliminates the gradual tax
rate reduction to 28% that was enacted in 2012. As a result, the tax rate for 2014 and
thereafter will remain at 30%. The flat tax introduced in 2009 which was levied
at the rate of 17.5% on cash flows of Mexican corporations was also eliminated
as part of the Tax Reform.

29

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|13. | **INCOME TAXES (Continued)**
|--- | ----------------------------

The combined Canadian federal and
provincial income tax rates increased from 25.00% for the year ended December
31, 2012 to 25.75% for the year ended December 31, 2013.

| | b) | **Tax reforms effective January 1,
      2014**
| | -- | -----------------------------------------------

The Tax Reform includes the
implementation of a 7.5% Special Mining Duty (SMD) and a 0.5% Extraordinary
Mining Duty (EMD). The Company has taken the position that the SMD is an
income tax under International Accounting Standard 12  Income Taxes
(IAS 12), as it is calculated based on a form of earnings before income taxes
less certain specified costs. The EMD is a calculation based on gross revenues
and is therefore not considered an income tax. Both the SMD and EMD will be
deductible for income tax purposes.

| | c) | Rate reconciliation
| | -- | -------------------

Income tax expense differs from the
amount that would result by applying the combined Canadian federal and
provincial income tax rates to earnings before income taxes. Substantially all
of the Companys taxable income for the year ended December 31, 2013 is
generated in Mexico and is subject to Mexicos 30% tax rate (year ended December
31, 2012 - 30%).

The impact of being subject to this
higher tax rate, as well as other differences, is included in the following
reconciliation:

| |                                                                 |   | Years ended December
      31, |  
| | --------------------------------------------------------------- | - | ------------------------------ | -
| |                                                                 |   | 2013                           |  
| | Earnings before income taxes                                    | $ | 40,238                         |  
| | Combined Canadian federal and provincial
      income tax rates |   | 25.75%                         |  
| | Expected income tax expense                                     |   | 10,361                         |  
| | Items that cause an increase (decrease):                        |   |                                |  
| | Effect of different tax rates in foreign jurisdiction           |   | 1,904                          |  
| | Non-deductible
      expenses                                   |   | 1,575                          |  
| | Foreign exchange                                                |   | 701                            |  
| | Effect of SMD in
      Mexico                                   |   | 8,605                          |  
| | Difference in future and current tax rates                      |   | 1,108                          |  
| | Change in
      unrecognized deferred income tax assets         |   | 826                            |  
| | Other                                                           |   | (185                           | )
| | Income tax expense                                              | $ | 24,895                         |  

As a result of the Tax Reform being
substantially enacted during December, temporary differences arose between the
book basis of the Companys mining assets and financial assets and liabilities
and their tax basis. For the purposes of calculating the SMD, the tax basis of
mining assets and financial assets and liabilities is $nil. The Company
recognized a net one-time non-cash charge of $8,605 related to the deferred tax
liability impact of the SMD. This deferred tax liability will be drawn down to
$nil as a reduction to deferred tax expense over the life of mine as the mine
and its related assets are depleted and depreciated.

30

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|13. | **INCOME TAXES (Continued)**
|--- | ----------------------------
|    |                             
|    | d)                          

The composition of the Company's net
deferred income tax liabilities at December 31, 2013 and 2012 and January 1,
2012 are as follows:

| |                                                            |  |       |  |   | December 31, |   |   | December 31, |   |   | January 1, |  
| | ---------------------------------------------------------- |  | ----- |  | - | ------------ | - | - | ------------ | - | - | ---------- | -
| |                                                            |  | Note  |  |   | 2013         |   |   | 2012         |   |   | 2012       |  
| | Deferred income tax
      liabilities:                     |  |       |  |   |              |   |   |              |   |   |            |  
| | Mineral properties book value in excess of
      tax value |  |       |  | $ | (51,376      | ) | $ | (29,579      | ) | $ | (21,996    | )
| | Deferred income tax liabilities, net                       |  | 4a)ii |  | $ | (51,376      | ) | $ | (29,579      | ) | $ | (21,996    | )

The Company's unrecognized deductible
temporary difference at December 31, 2013 and 2012 and January 1, 2012 are as
follows:

| |                                         |   | December 31, |  |   | December 31, |  |   | January 1, | 
| | --------------------------------------- | - | ------------ |  | - | ------------ |  | - | ---------- | 
| |                                         |   | 2013         |  |   | 2012         |  |   | 2012       | 
| | Deductible temporary
      differences: |   |              |  |   |              |  |   |            | 
| | Non-capital losses                      | $ | 39,113       |  | $ | 38,708       |  | $ | 29,368     | 
| | Other
      credits and tax assets      |   | 782          |  |   | 1,659        |  |   | 756        | 
| | Share issuance costs                    |   | 754          |  |   | 1,098        |  |   | 1,532      | 
| | Deductible temporary differences        | $ | 40,649       |  | $ | 41,465       |  | $ | 31,656     | 

| | e) | Non-capital losses
| | -- | ------------------

At December 31, 2013, the Company has
losses for income tax purposes in Canada and Mexico of $34,001 (December 31,
2012 - $32,544) and $7,575 (December 31, 2012 - $7,372), respectively, which may
be used to reduce future taxable income. The Canadian losses, if not utilized,
will expire through to 2034, while the Mexican losses, if not utilized, will 
expire through to 2022. Of these Canadian and Mexican amounts, $4,705 (December
31, 2012 - $620) and $1,241 (December 31, 2012 - $1,316), respectively, have
been offset against recognized deferred tax liabilities.

|14. | **EARNINGS PER SHARE**
|--- | ----------------------

Year ended December
      31, 2013
    
    
    Year ended December 31,
      2012Weighted
    
    
    
    
    
    
    
    
    WeightedEarnings
    
    
    average
    
    
    
    
    
    Earnings
    
    
    averagefor the
    
    
    shares
    
    
    Earnings
    
    
    for the
    
    
    shares
    
    
    Earningsyear
    
    
    outstanding
    
    
    per share
    
    
    year
    
    
    outstanding
    
    
    per shareBasic EPS
    $
    15,343
    
    
    144,120,095
    
    $
    0.11
    
    $
    37,732
    
    
    142,555,763
    
    $
    0.26Effect of dilutive securities:Share options
    
    -
    
    
    2,020,344
    
    
    -
    
    
    -
    
    
    1,933,707
    
    
    -Diluted EPS
    $
    15,343
    
    
    146,140,439
    
    $
    0.11
    
    $
    37,732
    
    
    144,489,470
    
    $
    0.26


31

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|14. | **EARNINGS PER SHARE (Continued)**
|--- | ----------------------------------

At December 31, 2013, 11,375,000
(December 31, 2012 - 9,050,000) share options were outstanding, of which
6,825,000 were anti-dilutive (December 31, 2012 - 2,587,500) because the
underlying exercise prices exceeded the average market price for the year ended
December 31, 2013 of the underlying common shares of C$2.08 (year ended December
31, 2012 - C$2.53) .

|15. | **SUPPLEMENTAL DISCLOSURE WITH RESPECT TO
      CASH FLOWS**
|--- | ------------------------------------------------------------

Significant non-cash transactions were
as follows:

| |                                                 |  |      |  |   | Years ended December
      31, | 
| | ----------------------------------------------- |  | ---- |  | - | ------------------------------ | 
| |                                                 |  | Note |  |   | 2013                           | 
| | Shares issued for debt
      issuance costs (1) |  | 12   |  | $ | 407                            | 
| | Equipment financing                             |  | 8    |  | $ | 3,214                          | 

| | (1) | At December 31, 2013,
$407 of share issuance costs were included in trade payables and accrued
liabilities.
| | --- | -----------------------------------------------------------------------------------------------------------

|16. | **FINANCIAL INSTRUMENTS AND RISK
      MANAGEMENT**
|--- | ---------------------------------------------------

| | a) | Fair value measurement of financial assets
      and liabilities
| | -- | ----------------------------------------------------------------

The Company has established a fair
value hierarchy that reflects the significance of inputs of valuation techniques
used in making fair value measurements as follows:

Level 1 - quoted prices in active
markets for identical assets or liabilities;

Level 2 - inputs other than quoted
prices included in Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. from derived prices); and

Level 3 - inputs for the asset or
liability that are not based upon observable market data.

At December 31, 2013 and 2012, none of
the Companys financial assets and liabilities are measured and recognized in
the consolidated statement of financial position at fair value.

The Company has determined the
estimated fair values of its financial instruments based upon appropriate
valuation methodologies.

At December 31, 2013 and 2012, there
were no financial assets or liabilities measured and recognized in the
consolidated statement of financial position at fair value that would be
categorized as Level 2 or Level 3 in the fair value hierarchy above.

| | b) | **Risk management**
| | -- | -------------------

The Companys primary business
activities consist of the acquisition, exploration, development and operation of
mineral resource properties in Mexico. The Company examines the various
financial risks to which it is exposed and assesses the impact and likelihood of
occurrence. These risks may include credit risk, commodity price risk, currency
risk, liquidity risk, and interest rate risk. The Companys risk management
program strives to evaluate the unpredictability of financial and commodity
markets and its objective is to minimize the potential adverse effects of such
risks on the Companys financial performance, where financially feasible to do
so. When deemed material, these risks may be monitored by the Companys
corporate finance group and they are regularly discussed with the Board of
Directors or one of its committees.

32

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|16. | **FINANCIAL INSTRUMENTS AND RISK
      MANAGEMENT (Continued)**
|--- | ---------------------------------------------------------------

| | i.   | Credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | Counterparty credit risk is the risk that the financial
      benefits of contracts with a specific counterparty will be lost if a
      counterparty defaults on its obligations under the contract. This includes
      any cash amounts owed to the Company by those counterparties, less any
      amounts owed to the counterparty by the Company where a legal right of
      set-off exists and also includes the fair values of contracts with
      individual counterparties which are recorded in the consolidated financial
      statements. The Companys credit risk is predominantly limited to cash
      balances held in financial institutions, the recovery of VAT receivable
      from the Mexican tax authorities, any gold and silver sales and related
      receivables, prepaid expenses and advances to counterparties and other
      receivables. The maximum exposure to the credit risk is equal to the
      carrying value of such financial assets. At December 31, 2013, the Company
      expects to recover the full amount of such assets.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | The objective of managing counterparty credit risk is to
      minimize potential losses in financial assets. The Company assesses the
      quality of its counterparties, taking into account their credit worthiness
      and reputation, past performance and other factors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | Cash is only deposited with or held by major financial
      institutions where the Company conducts its business. In order to manage
      credit and liquidity risk, the Company invests only in highly rated
      investment grade instruments that have maturities of three months or less.
      Limits are also established based on the type of investment, the
      counterparty and the credit rating.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | Gold and silver sales are made to a limited number of
      large international organizations specializing in the precious metals
      markets. The Company believes them to be of sound credit worthiness, and
      to date, all receivables have been settled in accordance with agreed upon
      terms and conditions. The Mexican tax authorities with whom the Company
      holds a VAT receivable balance, are also deemed to be of sound credit
      worthiness.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ii.  | Commodity price risks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | The Company is exposed to price risk associated with the
      volatility of the market price of commodities, in particular gold and
      silver, and also to many consumables that are used in the production of
      gold and silver.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | The prices of most commodities are determined in
      international markets and as such the Company has limited or no ability to
      control or predict the future level of most commodity prices. In some
      instances, the Company may have the ability to enter into derivative
      financial instruments to manage the Companys exposure to changes in the
      price of commodities such as gold, silver, oil and electricity. At this
      time, the Company has elected not to actively manage its exposure to
      commodity price risk through the use of derivative financial
      instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | iii. | Currency risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | The Companys functional currency is the US dollar and
      therefore the Companys earnings and total comprehensive income are
      impacted by fluctuations in the value of foreign currencies in relation to
      the US dollar.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | The table below summarizes the net monetary assets and
      liabilities held in foreign currencies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                                |   | December 31, |   |   | December 31, |   |   | January 1, |  
| | ---------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ---------- | -
| |                                                |   | 2013         |   |   | 2012         |   |   | 2012       |  
| | Canadian dollar net monetary
      liabilities | $ | (17,635      | ) | $ | (17,191      | ) | $ | (17,543    | )
| | Mexican peso net monetary assets               |   | 7,540        |   |   | 3,681        |   |   | (2,814     | )
| |                                                | $ | (10,095      | ) | $ | (13,510      | ) | $ | (20,357    | )

33

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|16. | **FINANCIAL INSTRUMENTS AND RISK
      MANAGEMENT (Continued)**
|--- | ---------------------------------------------------------------

The effect on earnings before income
tax at December 31, 2013 of a 10.0% appreciation in the foreign currencies
against the US dollar on the above mentioned net monetary assets and liabilities
of the Company is estimated to be a decrease of $1,122 (December 31, 2012 -
$1,501) assuming that all other variables remained constant.

The effect on earnings before income
tax at December 31, 2013 of a 10.0% depreciation in the foreign currencies
against the US dollar on the above mentioned financial and non-financial assets
and liabilities of the Company is estimated to be an increase of $918 (December
31, 2012 - $1,228) assuming that all other variables remained constant.

The calculations above are based on the
Companys statement of financial position exposure at December 31, 2013.

| | iv. | Liquidity risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | The Company has a planning and budgeting process in place
      to help determine the funds required to support the Companys normal
      operating requirements and its exploration and production plans. The
      Companys overall liquidity risk has significantly decreased since the San
      Francisco Mine was placed into commercial production on April 1, 2010 due
      to the metal revenues and positive net cash flows from operations
      generated since that time.                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | Although the Company has transitioned to the operating
      stage and has generated metal revenues and net cash flow from operations
      during the year ended December 31, 2013, no assurance may be given that
      external financing will be available should the Companys Board of
      Directors determine that such additional financing will be
    necessary.                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | A summary of future operating commitments is presented in
      note 20.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | v.  | Interest rate risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | The Companys interest revenue earned on cash and
      interest expense incurred on the loan facility and equipment financing are
      exposed to interest rate risk. The Company does not enter into derivative
      contracts to manage this risk, and the Companys exposure to interest rate
      risk is very low as the Company has a fixed interest rate on its loan
      facility and equipment financing. At December 31, 2013, a 1.0% increase of
      the effective interest rate on the loan facility would decrease its fair
      value by C$165 ($155) (December 31, 2012 - C$253 ($255)). Additionally, a
      1.0% decrease of the effective interest rate on the loan facility would
      increase its fair value by C$180 ($169) (December 31, 2012 - C$167
      ($157)).
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | At December 31, 2013, a 1.0% increase of the effective
      interest rate on the equipment financing would decrease its fair value by
      $43 (December 31, 2012 - $nil). Additionally, a 1.0% decrease of the
      effective interest rate on the equipment financing would increase its fair
      value by $44 (December 31, 2012 - $nil).                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | The Company has elected not to enter into interest rate
      swaps or other instruments to actively manage such risks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | vi. | Fair value disclosures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | At December 31, 2013 and 2012, none of the Companys
      financial assets and liabilities are measured and recognized in the
      consolidated statement of financial position at fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | The carrying values of cash, trade and other receivables,
      and trade payables and accrued liabilities approximate their fair value
      due to their short-term nature. The carrying value of the vendor loan
      approximates its fair value given its short-term nature.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | The fair value of the equipment financing at December 31,
      2013 is $3,189 as determined by discounting the future cash flows by a
      discount factor based on an interest rate of 7.8%, which reflects the
      Companys effective interest rate on the loan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

34

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|16. | **FINANCIAL INSTRUMENTS AND RISK
      MANAGEMENT (Continued)**
|--- | ---------------------------------------------------------------

During June 2013, the anniversary fee
payment relating to the loan facility was waived. This anniversary fee payment
would have been due on July 28, 2013 and equal to 1.0% of the total loan
facility balance outstanding to a maximum of C$180, payable in common shares at
a price equal to a 10.0% discount of the volume weighted average trading price
of the common shares over the previous five trading days. This anniversary fee
was originally accounted for as a transaction cost which reduced the carrying
value of the loan. As a result of the fee being waived, the transaction cost was
reversed and there was an increase of C$154 to the accretion expense.

On December 31, 2013, the terms of the
loan facility were amended and the maturity date was extended to December 31,
2014 with a stated interest rate of 9.0% per annum. The fair value of the loan
facility at December 31, 2013 is C$17,484 ($16,438) (December 31, 2012 -
C$17,177 ($17,265)) as determined by discounting the future cash flows by a
discount factor based on an interest rate of 12.1% (December 31, 2012 - 10.7%),
which reflects the Companys effective interest rate on the loan.

|17. | **RELATED PARTY TRANSACTIONS**
|--- | ------------------------------

The Companys related parties include
key management personnel and any transactions with such parties for goods and/or
services are made on regular commercial terms and are considered to be at arms
length. During the years ended December 31, 2013 and 2012, the Company entered
into the following transactions with related parties:

| |  | The Company incurred $nil (year ended December 31, 2012 - $30) of
  consulting fees to directors and officers; and                    
| |  | --------------------------------------------------------------------------------------------------------------------------------------
| |  | At December 31, 2013, $6 was due from these directors and officers
  (December 31, 2012 - $5 was due to these directors and officers).

Key management are those personnel
having the authority and responsibility for planning, directing, and controlling
the Company. Salaries and benefits, bonuses and share-based payments are
included in corporate and administrative expenses.

Key management compensation includes:

| |                       |   | Years ended December
      31, | 
| | --------------------- | - | ------------------------------ | 
| |                       |   | 2013                           | 
| | Salaries and benefits | $ | 1,555                          | 
| | Bonuses               |   | 549                            | 
| | Share-based payments  |   | 408                            | 
| |                       | $ | 2,512                          | 

35

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|18. | MANAGEMENT OF CAPITAL
|--- | ---------------------

The Companys objectives of capital
management are intended to safeguard the Companys normal operating requirements
on an ongoing basis and the continued development and exploration of its mineral
properties. The capital of the Company consists of the consolidated equity, loan
facility and equipment financing, net of cash.

| |                     |   | December 31, |   |   | December 31, |   |   | January 1, |  
| | ------------------- | - | ------------ | - | - | ------------ | - | - | ---------- | -
| |                     |   | 2013         |   |   | 2012         |   |   | 2012       |  
| | Equity              | $ | 164,352      |   | $ | 148,060      |   | $ | 100,181    |  
| | Loan facility       |   | 16,438       |   |   | 17,641       |   |   | 17,246     |  
| | Equipment financing |   | 3,214        |   |   | -            |   |   | -          |  
| |                     |   | 184,004      |   |   | 165,701      |   |   | 117,327    |  
| | Less: Cash          |   | (22,776      | ) |   | (24,188      | ) |   | (9,865     | )
| |                     | $ | 161,228      |   | $ | 141,513      |   | $ | 107,462    |  

In order to facilitate the management
of its capital requirements, the Company prepares expenditure budgets that are
updated as necessary depending on various factors, including successful capital
deployment and general industry conditions.

The Company also has in place a
rigorous planning, budgeting and forecasting process which is used to identify
the amount of funds required to ensure the Company has appropriate liquidity to
meet short and long-term operating objectives. In order to maintain or adjust
its capital structure, the Company may issue new shares or debt.

At December 31, 2013, the Company
anticipates its capital resources and projected future cash flows from operation
of the San Francisco Mine to support its normal operating requirements on an
ongoing basis as well as the planned development and exploration of its mineral
and exploration properties. At December 31, 2013, the Company is not subject to
any externally imposed capital requirements.

|19. | **COMMITMENTS AND CONTINGENCIES**
|--- | ---------------------------------

A summary of non-discounted
liabilities and future operating commitments at December 31, 2013 are as
follows:

| |                                                                  |   |         |  |   |         |  |   |         |  |   | Greater | 
| | ---------------------------------------------------------------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ------- | 
| |                                                                  |   |         |  |   | Within  |  |   | 2 - 5   |  |   | than 5  | 
| |                                                                  |   | Total   |  |   | 1 year  |  |   | years   |  |   | years   | 
| | Trade payables and accrued
      liabilities                     | $ | 27,144  |  | $ | 27,144  |  | $ | -       |  | $ | -       | 
| | Vendor loan                                                      |   | 1,725   |  |   | 1,725   |  |   | -       |  |   | -       | 
| | Loan facility (C$18,000)                                         |   | 16,924  |  |   | 16,924  |  |   | -       |  |   | -       | 
| | Equipment financing                                              |   | 3,214   |  |   | 1,134   |  |   | 2,080   |  |   |         | 
| | Interest payments on loan
      facility and equipment financing |   | 1,861   |  |   | 1,717   |  |   | 144     |  |   | -       | 
| | Future operating commitments (1)                                 |   | 233,831 |  |   | 66,999  |  |   | 166,832 |  |   | -       | 
| | Provision for site
      reclamation and closure (2)             |   | 4,540   |  |   | -       |  |   | -       |  |   | 4,540   | 
| | Other provisions (3)                                             |   | 1,127   |  |   | -       |  |   | 1,127   |  |   | -       | 
| |                                                                  | $ | 290,366 |  | $ | 115,643 |  | $ | 170,183 |  | $ | 4,540   | 

| | (1) | The future operating commitments of the Company are
      mainly due to the mining contract with Peal de Mexico, S.A. de C.V.
      (Peal). The original Peal contract was for 42 months, however an
      addendum was signed effective November 1, 2012 for five years (December
      31, 2013 - 46 months remaining) and covers substantially all mining
      services at a cost of $1.59 per tonne of material mined ($1.64 per the
      original contract).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

36

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|19. | **COMMITMENTS AND CONTINGENCIES
      (Continued)**
|--- | ---------------------------------------------------

| |     | The Peal commitment is based on the forecasted minimum
      tonnage to be mined until the end of the mining contract, and would be
      significantly less in the event that mining activities at the San
      Francisco Mine ceased. Operating commitments also includes a guarantee
      provided by the Company for the office premises at its corporate
      office.                                                                                                               
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Provision for site reclamation and closure represents the
      non-discounted amount of the estimated cash flows required to settle the
      retirement obligations of the San Francisco Mine.                                                                                                                                                                                                                                                                                            
| | (3) | Other provisions represent the non-discounted amount of
      the demobilization costs related to the Peal contract, whereby the Company
      is responsible for demobilization costs of $900 (plus value added tax)
      payable one month prior to the end of the mining contract. This obligation
      has been recorded at an annualized discount rate of 1.4%, reflecting the
      implied interest rate, and calculated according to the formula stipulated
      in the contract.

Various tax and legal matters are
outstanding from time to time. In the event that managements estimate of the
future resolution of these matters changes, the Company will recognize the
effects of these changes in the consolidated financial statements on the date
such changes occur. The Company will also have commitments with regards to
payments going to El Picacho and San Onesimo exploration properties at various
dates until January 2015.

|20. | **SEGMENTED INFORMATION**
|--- | -------------------------

The Company has determined that it has
one reportable operating segment, being the acquisition, exploration, and
development of mineral properties located in Mexico. At December 31, 2013, all
of the Companys operating and capital assets are located in Mexico except for
$1,508 (December 31, 2012 - $2,296) of cash and other current assets which are
held in Canada.

Reporting is prepared on a geographic
and consolidated basis as determined by the requirements of the Chief Executive
Officer as the chief operating decision maker for the Company. The Company does
not treat the production of gold and silver, the primary two minerals, as
separate operating segments as they are the output of the same production
process and only become separately identifiable as finished goods and are not
reported separately from a management perspective.

During the years ended December 31,
2013 and 2012, the Company had sales agreements with three major customers. The
percentage breakdown of metal revenues by major customer is as follows:

| |            |  | Years ended December
      31, | 
| | ---------- |  | ------------------------------ | 
| |            |  | 2013                           | 
| | Customer A |  | 96%                            | 
| | Customer B |  | 2%                             | 
| | Customer C |  | 2%                             | 
| | Total      |  | 100%                           | 

Due to the nature of the gold market,
the Company is not dependent on any customers to sell the finished goods.

The Companys metal revenues from
operations for the years ended December 31, 2013 and 2012 are as follows:

| |                   |   | Years ended December
      31, | 
| | ----------------- | - | ------------------------------ | 
| |                   |   | 2013                           | 
| | Gold              | $ | 159,193                        | 
| | Silver by-product |   | 1,400                          | 
| |                   | $ | 160,593                        | 

37

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2013                                                
|(In thousands of
      United States dollars, except where noted)

|21. | **EVENTS AFTER THE REPORTING
      PERIOD**
|--- | -------------------------------------------

| | a) | On February 11, 2014, the Company closed a bought deal
      financing which generated gross proceeds of C$28,380 ($25,758) on issuance of
      18,920,000 common shares of the Company.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                          
| | b) | On February 28, 2014, the Company repaid C$5,000 ($4,515) in
      principal of the C$18,000 ($16,438) loan facility outstanding at December 31,
      2013.                             

38

---